What is the Future of Hotels Now that Millennials are the Largest Generation (in the U.S.)?

By Marc Stephen Shuster Partner, Berger Singerman | May 03, 2015

Co-authored by Barry D. Lapides, Partner, Berger Singerman

Whether it is Hyatt Centric, Canopy by Hilton, AC Hotels by Marriot, Vib by Best Western Hotel, Radisson Red, or OE Collection from Loews Hotels, established hotel chains are deploying a new strategy to address the ever growing buying power of Millennials. These chains are creating new brands that specifically cater to Millennials. In fact, besides the established Hotel companies, new chains are being (or have been) created to address the Millennial generation (or there corporate ownership is being disguised). Think Virgin Hotels, Moxy Hotels (another hotel concept from Marriot), Tommie Hotels (by Commune Hotels and Resorts) and Kimpton Hotels (now owned by the InterContinental Hotels Group). The focus on Millennials by Hotel companies is not just a U.S. trend; it’s worldwide. India-based Park Hotels created Zone to focus on Millennials. Same with Europe-based City Living that created the Student Hotel with four (4) locations in Europe. The Middle East has Venu from Jumeirah Hotels. And Asia is also in the game: Shimao Group based out of Shanghai is creating two new flags: MiniMax Hotels and MiniMax Premier Hotels and Shangri-La Hotels is converting all of their Traders Hotels into Hotel Jen, which will be Millennial friendly. All of the foregoing are simply examples of how hotels are not only recognizing but catering to Millennials.

So who are Millennials? Millennials, otherwise known as Generation Y, are individuals who generally reached adulthood around the turn of the 21st century. According to an October 2014 report by The Council of Economic Advisors for the President of the United States (the “Report”), they comprise the largest and most diverse segment in the U.S. population. They are the first generation to have had access to the Internet during their entire lifetime, and this translates into the fact that Millennials grew up in an electronics-filled and increasingly online and socially-networked world. Due to this, Millennials expect an instantaneous connection to the Internet and, because of that, their real world blends into the online world, expecting instant gratification online and offline. According to the Report, Millennials value quality of life and experiences and that is why 20th century Hotels just can’t compete. More importantly, Millennials came of age during the Great Recession and this impacts how they save and spend their money. According to the Report, the Great Recession can impact future earnings of this group; however, because Millennials are the most educated generation in history, this may counterbalance any adverse effects emanating from the Great Recession.

So what are hotels doing to attract Millennials? First and perhaps foremost, Millennials expect free (and high speed) Internet access. Consequently, if a hotel does not provide free Internet service (something which is today becoming increasingly aberrational) and that Hotel is lucky enough to attract a Millennial, chances are better than not that Millennials will simply go someplace that does have free Internet service (e.g., the local Starbucks). That’s why according to The Wall Street Journal, most budget and limited service hotels provide free Internet service while luxury hotels are still perhaps mistakenly using Internet service as an additional revenue source.

A hybrid approach is seen with the likes of Marriott and Starwood, which are using free Internet service as a loyalty inducement (e.g., provided the customer is in the hotel’s loyalty rewards program, that customer will receive a certain level of free Internet service). However, the general point here cannot be overemphasized: Millenials require free and easy Internet access. We know this is true because there are even significant movements afoot to disband with cellphone carriers and go completely off of Wi-Fi, wherever so located. And although that may be somewhat unrealistic for now, why is this notion important? Because Millennials value socialization (think about their connectivity online) and hotels that do not have free Internet access is bound to lose out to Millennials spending money in the hotel.

For instance, Caesars Entertainment is repositioning and renovating the recently renovated Quad Hotel and Casino in Las Vegas into the LINQ Hotel with Millennials in mind. Tariq Shaukat, Executive Vice President and Chief Commercial Officer of Caesars Entertainment, is quoted as saying “The resort will provide guests with a highly social and connected environment, with all of the great restaurants, shops and experiences available at the LINQ Promenade right at their fingertips.” The phrase “highly social and connected environment” is directed at exactly what Millennials want and expect out of their Hotels.

Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.